Article / 22 August 2016 at 7:10 GMT

COT: Crude oil rally was driven by short-covering only

Head of Commodity Strategy / Saxo Bank
  • Bullish bets up 4% in first rise since Brexit vote
  • 15 out of 23 commodity futures were sold
  • Oil rally fuelled by short-covering alone is unhealthy

By Ole Hansen

Hedge funds increased bullish commodity bets by 4% during the week ending August 16. This first week of net-buying since the Brexit vote was primarily driven by short-covering in WTI crude oil and CBOT wheat while soybean oil also attracted strong buying interest.

These few additions more than offset a week were 15 out of the 23 commodity futures, tracked in this report were sold.

Speculative positioning in Commodities
By last Tuesday the rally in WTI crude oil had already extended beyond 15% in response to the latest surge following the verbal intervention, especially from Saudi Arabia. These comments forced a major round of short-covering last week while the long base only increasing by 465 lots. A rally purely driven by short-covering does not look healthy from a longer-term perspective so we may still find short sellers waiting for the right signal to get back in.

Speculative positioning in WTI Crude oil
Bullish gold bets have now been reduced in 5 out of the past 6 weeks, but still only by a relative small portion of what was added post-Brexit. The yellow metal's inability to break its current range despite the tailwind from the weaker dollar has been seen as main reason behind the light selling seen so far. 
Speculative positioning in COMEX Gold futures

Silver, the canary in the coalmine?

A fifth weekly rise in gross-short helped trigger another weekly reduction in what was a record net-long silver position just three weeks ago. While gold has been trading sideways for weeks silver has begun correcting, probably due to the combination of a big long and lower liquidity (than gold). 

Speculative positioning in COMEX Silver futures
Corn traders were heavy sellers into the post-WASDE bounce. Further short-covering is likely to be forced over the coming days, especially on a break above $3.46 on ZCZ6 which could signal that a near-term low has been established.
Speculative positioning in CBOT Corn
Sugar remains a major correction candidate with the near record long in need of fundamental support to be sustained. Look out for a break of the 19–21 cents/lb range that has prevailed since June. 
Speculative positioning in Sugar

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank

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Commitments of Traders: Commodities

Ole Hansen Ole Hansen
US oil producers increased hedging activity last week. The short position among this segment jumped 36,000 lots to 587,000, the highest since 2011. This most likely in response to the return above $50 on calendar 17 and 18.
Ole Hansen Ole Hansen
Brent crude net-long jumped by 63,792 lots or 22% in week to Aug 16. While short-covering were the only driver behind WTI's recent surge speculators cut shorts but also added fresh longs in Brent.
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